Currys grew like-for-like (LfL) revenues by 5% in the UK & Ireland over the first 17 weeks of the financial year. This was put down to factors including market share gains, demand for Artificial Intelligence enabled computing products, and England’s strong performance at the Euro 2024 football competition.
Gross margin improvements have been driven by positive momentum in Services, with sales growing ahead of company expectations.
LfL revenue fell by 2% in the Nordics with weakness in the consumer environment persisting. Here too however, Services adoption has helped to boost the gross margin.
Guidance for the year remains unchanged, with growth still expected in profit and free cash flow, although no range has been set.
The shares were trading flat following the announcement.
Our view
Currys has seen the positive progress made last year spill over into the current trading period. The continued recovery indicates a potential easing of market headwinds and signals cautious optimism for the future.
Consumers have struggled to justify upgrading appliances, with demand for small electrical goods particularly affected. But an increase in UK consumer confidence, driven by rising economic optimism, suggests that a recovery in discretionary spending may be underway. Even a partial return to the longer-term growth trends Currys previously experienced could significantly benefit the group.
Market share gains in all major markets are to be applauded, and the integration of Artificial Intelligence into consumer electronics may herald the beginning of an upgrade cycle. So far this is playing out well, but we caution that it’s early days. Currys also gives some credit to the Summer of Sport for the strong sales performance in UK & Ireland. That’s a tailwind unlikely to repeat for a while.
The fly in the ointment remains the Nordic region which has had a tough start to the year. The Group is doing a good job at navigating the challenges improving both gross margins and market share, but it won’t be able to avoid a dip in performance if there’s a prolonged weakness in consumer demand.
The group's services channels remain a beacon of light. Services typically have higher margins than goods sales, so can help to relieve some of the pressure being felt. They also bring a little more revenue visibility to what remains a model very much at the mercy of ups and downs in consumer sentiment.
Fortunately, the balance sheet has been bolstered by last year’s sale of the Greek division. This and the improving cash generation means the group is well placed to cope if the trading deteriorate. There’s also the potential to return any surplus cash to shareholders in the form of a dividend. Although the board has announced its intention to recommence shareholder returns, this is not guaranteed.
Profit growth has been strong, but their cyclical nature means consumer electronics will always be a challenging place to be, particularly as spending power remains under pressure. Key to convincing markets that the recovery is now in full swing will be continued sales progress in the Nordics, and that’s not proving easy. While the balance between sales and margins continues to improve, it’s essential that encouraging momentum is maintained if the valuation is to continue closing the gap with the long-term average.
Environmental, social and governance (ESG) risk
The electronics retail sector is low risk in terms of ESG. Data Privacy and Cybersecurity, Human Rights - Supply Chain and Human Capital are key contributors to ESG risk.
According to Sustainalytics, Currys management of ESG risk is strong. It has set up a dedicated ESG board and executive compensation is tied to performance on these issues. There is also an environmental policy, including a commitment to net zero and interim targets. However, ESG-related disclosure falls short of best practice.
Currys key facts
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